Tax filing delay looms if no fix for minimum tax: IRS

Reuters News
Posted: Dec 06, 2012 5:38 PM

By Patrick Temple-West

WASHINGTON (Reuters) - The top U.S. tax collector warned on Thursday of a delayed start to 2013's tax season if Congress fails to reset the alternative minimum tax (AMT) on high-income taxpayers so that it does not sweep in millions of middle-income people.

Without another adjustment by lawmakers soon to the AMT, "many of us will see a delayed filing season," said Steven Miller, named just last month as Internal Revenue Service acting commissioner.

Miller did not give an exact date by which Congress must approve an AMT "patch" to prevent a delay to the tax season, which is scheduled to begin on January 22.

"We don't have any drop-dead time in mind," Miller told reporters after a speech at a conference in Washington.

But his remarks came on a day of continued stalemate in Washington between Democrats and Republicans over what to do about the "fiscal cliff" approaching at the end of the year.

The AMT is a crucial part of the assorted tax increases and automatic spending cuts that make up the so-called "cliff," a convergence of events that, absent congressional action, threatens to plunge the U.S. economy back into recession.

"Many people don't realize that they could potentially face a significantly delayed filing season and a much bigger tax bill for 2012," if the AMT is not dealt with, Miller said.

"In programming our systems, the IRS has assumed that Congress will patch the AMT as Congress has for so many years.

"And I remain optimistic that the fiscal cliff debate will be resolved by the end of the year. If that turns out not to be the case, then what is clear is that many of us will see a delayed filing season," Miller said.

The AMT is a tax intended to make sure that at least some tax is paid by high-income people who otherwise could sharply reduce or eliminate their regular income tax bills through using tax loopholes. About 4 million people annually pay the AMT.

Unlike the regular income tax, the AMT is not indexed for inflation. So the thresholds that determine who must pay the tax have to be regularly raised. This prevents the AMT from hitting middle-class people whose incomes may have crept upward on the back of inflation, but who are not wealthy.

Congress last patched the AMT in late 2010. Without another patch, the AMT could hit as many as 33 million people for the 2012 tax year, according to the IRS.

Democratic Senator Charles Schumer of New York said on Thursday he is "hopeful" that the AMT problem will be fixed with a broader "fiscal cliff" resolution before December 31.

Republicans in Congress may see the AMT as leverage in their "fiscal cliff" negotiations with President Barack Obama and the Democrats.

The IRS might have until mid-January to implement an AMT patch and still start the tax season on time, if Congress approves the fix as expected, said Richard Harvey, a tax professor at Villanova University and a former IRS official.

The AMT "is a ticking time bomb that is going to go off some time in January," Harvey said.

(Editing by Kevin Drawbaugh; Editing by M.D. Golan)